UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2011
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 033-17264-NY
ImmunoCellular Therapeutics, Ltd.
(Exact name of registrant as specified in its charter)
DELAWARE | 93-1301885 | |
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
21900 Burbank Boulevard, 3 rd Floor
Woodland Hills, California 91367
(Address of principal executive offices)
(818) 992-2907
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated Filer | ¨ | |||
Non-accelerated filer | ¨ | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The Issuer had 29,213,984 shares of its common stock outstanding as of November 10, 2011.
ImmunoCellular Therapeutics, Ltd.
FORM 10-Q
Table of Contents
Page | ||||||||
PART I FINANCIAL INFORMATION | 1 | |||||||
Item 1. |
Financial Statements | 1 | ||||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations. | 17 | ||||||
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 21 | ||||||
Item 4. |
Controls and Procedures | 21 | ||||||
PART II OTHER INFORMATION | 22 | |||||||
Item 1. |
Legal Proceedings | 22 | ||||||
Item 1A. |
Risk Factors | 22 | ||||||
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 22 | ||||||
Item 3. |
Defaults Upon Senior Securities | 22 | ||||||
Item 4. |
Removed and Reserved | 22 | ||||||
Item 5. |
Other Information | 22 | ||||||
Item 6. |
Exhibits | 22 | ||||||
SIGNATURES | 23 | |||||||
EXHIBIT LIST | 24 |
i
FINANCIAL INFORMATION
Item 1. | Financial Statements |
ImmunoCellular Therapeutics, Ltd.
(A Development Stage Company)
Condensed Balance Sheets
December 31, | September 30, | |||||||
2010 | 2011 | |||||||
(unaudited) | ||||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 5,319,776 | $ | 8,551,433 | ||||
Other assets |
24,033 | 245,767 | ||||||
|
|
|
|
|||||
Total current assets |
5,343,809 | 8,797,200 | ||||||
Property and equipment, net |
12,367 | 63,763 | ||||||
Other assets |
8,974 | 27,825 | ||||||
|
|
|
|
|||||
Total assets |
$ | 5,365,150 | $ | 8,888,788 | ||||
|
|
|
|
|||||
Liability and Shareholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 171,065 | $ | 248,701 | ||||
Accrued liabilities |
276,384 | 605,941 | ||||||
|
|
|
|
|||||
Total current liabilities |
447,449 | 854,642 | ||||||
Warrant Liability |
2,581,871 | 3,541,078 | ||||||
Commitments and contingencies (Note 5) |
||||||||
Shareholders equity: |
||||||||
Common stock, $0.0001 par value; 74,000,000 shares authorized; 22,213,602 shares and 28,589,468 shares issued and outstanding as of December 31, 2010 and September 30, 2011, respectively |
2,221 | 2,859 | ||||||
Additional paid in capital |
25,341,679 | 31,665,181 | ||||||
Promissory note |
(54,282 | ) | 0 | |||||
Deficit accumulated during the development stage |
(22,953,788 | ) | (27,174,972 | ) | ||||
|
|
|
|
|||||
Total shareholders equity |
2,335,830 | 4,493,068 | ||||||
|
|
|
|
|||||
Total liabilities and shareholders equity |
$ | 5,365,150 | $ | 8,888,788 | ||||
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
1
ImmunoCellular Therapeutics, Ltd.
(A Development Stage Company)
Condensed Statements of Operations
(Unaudited)
For the Three
Months Ended September 30, |
For the Three
Months Ended September 30, |
For the Nine
Months Ended September 30, |
For the Nine
Months Ended September 30, |
February 25,
2004 (Inception) to September 30, |
||||||||||||||||
2010 | 2011 | 2010 | 2011 | 2011 | ||||||||||||||||
Revenues |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 300,000 | ||||||||||
Expenses: |
||||||||||||||||||||
Research and development |
1,126,733 | 1,241,165 | 1,815,689 | 3,016,562 | 8,576,829 | |||||||||||||||
Merger costs |
0 | 0 | 0 | 0 | 73,977 | |||||||||||||||
Stock based compensation |
209,431 | 324,283 | 541,675 | 958,121 | 7,987,994 | |||||||||||||||
General and administrative |
495,292 | 634,241 | 1,586,930 | 1,767,852 | 8,312,574 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total expenses |
1,831,456 | 2,199,689 | 3,944,294 | 5,742,535 | 24,951,374 | |||||||||||||||
Loss before other income (expense) and income taxes |
(1,831,456 | ) | (2,199,689 | ) | (3,944,294 | ) | (5,742,535 | ) | (24,651,374 | ) | ||||||||||
Interest income |
1,012 | 1,123 | 2,572 | 3,768 | 338,557 | |||||||||||||||
Change in fair value of warrant liability |
635,014 | 2,286,478 | 311,324 | 1,517,583 | (769,655 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) before income taxes |
(1,195,430 | ) | 87,912 | (3,630,398 | ) | (4,221,184 | ) | (25,082,472 | ) | |||||||||||
Income taxes |
0 | 0 | 0 | 0 | 0 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
(1,195,430 | ) | 87,912 | (3,630,398 | ) | (4,221,184 | ) | (25,082,472 | ) | |||||||||||
Deemed dividend on redemption of preferred stock |
0 | 0 | (954,750 | ) | 0 | (2,092,500 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) attributable to common stock |
($ | 1,195,430 | ) | $ | 87,912 | ($ | 4,585,148 | ) | ($ | 4,221,184 | ) | ($ | 27,174,972 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) per share: |
||||||||||||||||||||
Basic |
($ | 0.06 | ) | $ | 0.00 | ($ | 0.25 | ) | ($ | 0.16 | ) | ($ | 2.11 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Diluted |
($ | 0.06 | ) | $ | 0.00 | ($ | 0.25 | ) | ($ | 0.16 | ) | ($ | 2.11 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Weighted average number of shares: |
||||||||||||||||||||
Basic |
21,049,211 | 28,497,656 | 18,416,046 | 27,061,685 | 12,853,575 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Diluted |
21,049,211 | 33,752,060 | 18,416,046 | 27,061,685 | 12,853,575 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
2
ImmunoCellular Therapeutics, Ltd.
(A Development Stage Company)
Condensed Statements of Stockholders Equity
(Unaudited)
Additional |
Deficit
Accumulated During the |
|||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-in | Promissory | Development | ||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Note | Stage | Total | |||||||||||||||||||||||||
Initial capitalization at $0.00002 per share |
0 | $ | 0 | 6,256,500 | $ | 10 | $ | 87 | $ | 0 | $ | 0 | $ | 97 | ||||||||||||||||||
Common stock issued for cash during 2004 at $0.00078 per share |
0 | 0 | 193,500 | 15 | 135 | 0 | 0 | 150 | ||||||||||||||||||||||||
Net loss |
0 | 0 | 0 | 0 | 0 | 0 | (11,741 | ) | (11,741 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance at December 31, 2004 |
0 | 0 | 6,450,000 | 25 | 222 | 0 | (11,741 | ) | (11,494 | ) | ||||||||||||||||||||||
Common stock issued for cash during 2005 at $0.19 per share |
0 | 0 | 387,000 | 659 | 74,341 | 0 | 0 | 75,000 | ||||||||||||||||||||||||
Common stock issued for cash during 2005 at $0.32 per share |
0 | 0 | 154,800 | 16 | 49,984 | 0 | 0 | 50,000 | ||||||||||||||||||||||||
Common stock issued for research and development during 2005 at $0.99 per share |
0 | 0 | 154,800 | 15 | 152,745 | 0 | 0 | 152,760 | ||||||||||||||||||||||||
Net loss |
0 | 0 | 0 | 0 | 0 | 0 | (246,004 | ) | (246,004 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance at December 31, 2005 |
0 | 0 | 7,146,600 | 715 | 277,292 | 0 | (257,745 | ) | 20,262 | |||||||||||||||||||||||
Common stock issued for services during 2006 at $0.50 per share |
0 | 0 | 73,093 | 7 | 36,539 | 0 | 0 | 36,546 | ||||||||||||||||||||||||
Common stock issued for cash during 2006 in private placements at $1.00 per share, net of redemptions |
0 | 0 | 1,510,000 | 151 | 549,249 | 0 | 0 | 549,400 | ||||||||||||||||||||||||
Common stock issued for research and development during 2006 at $1.00 per share |
0 | 0 | 694,000 | 69 | 693,931 | 0 | 0 | 694,000 | ||||||||||||||||||||||||
Shares issued in connection with reverse merger |
0 | 0 | 825,124 | 83 | (83 | ) | 0 | 0 | 0 | |||||||||||||||||||||||
Shares cancelled in connection with the sale of Optical Molecular Imaging, Inc. |
0 | 0 | (2,059,100 | ) | (206 | ) | (64,794 | ) | 0 | 0 | (65,000 | ) | ||||||||||||||||||||
Exercise of stock options |
0 | 0 | 10,062 | 1 | 3,521 | 0 | 0 | 3,522 | ||||||||||||||||||||||||
Stock based compensation (options) |
0 | 0 | 0 | 0 | 4,103,645 | 0 | 0 | 4,103,645 | ||||||||||||||||||||||||
Net loss |
0 | 0 | 0 | 0 | 0 | 0 | (5,152,713 | ) | (5,152,713 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance at December 31, 2006 |
0 | 0 | 8,199,779 | 820 | 5,599,300 | 0 | (5,410,458 | ) | 189,662 | |||||||||||||||||||||||
Common stock issued for cash during 2007 in private placements at $1.50 per share |
0 | 0 | 3,531,603 | 353 | 4,892,133 | 0 | 0 | 4,892,486 | ||||||||||||||||||||||||
Exercise of stock options |
0 | 0 | 51,111 | 5 | (5 | ) | 0 | 0 | 0 | |||||||||||||||||||||||
Reclassification of warrant derivative liability |
0 | 0 | 0 | 0 | 2,233,600 | 0 | 0 | 2,233,600 | ||||||||||||||||||||||||
Stock based compensation (options) |
0 | 0 | 0 | 0 | 1,296,714 | 0 | 0 | 1,296,714 | ||||||||||||||||||||||||
Net loss |
0 | 0 | 0 | 0 | 0 | 0 | (3,614,753 | ) | (3,614,753 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance at December 31, 2007 |
0 | 0 | 11,782,493 | 1,178 | 14,021,742 | 0 | (9,025,211 | ) | 4,997,709 | |||||||||||||||||||||||
Common stock issued for research and development during 2008 at $0.53 per share |
0 | 0 | 800,000 | 80 | 423,920 | 0 | 0 | 424,000 | ||||||||||||||||||||||||
Common stock issued for research and development during 2008 at $0.65 per share |
0 | 0 | 100,000 | 10 | 64,990 | 0 | 0 | 65,000 | ||||||||||||||||||||||||
Stock based compensation (options) |
0 | 0 | 0 | 0 | 513,357 | 0 | 0 | 513,357 | ||||||||||||||||||||||||
Net loss |
0 | 0 | 0 | 0 | 0 | 0 | (3,059,730 | ) | (3,059,730 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance at December 31, 2008 |
0 | 0 | 12,682,493 | 1,268 | 15,024,009 | 0 | (12,084,941 | ) | 2,940,336 | |||||||||||||||||||||||
Exercise of warrants |
0 | 0 | 1,970,992 | 197 | 462,551 | 0 | 0 | 462,748 | ||||||||||||||||||||||||
Exercise of stock options |
0 | 0 | 214,357 | 22 | 64,460 | (52,668 | ) | 0 | 11,814 | |||||||||||||||||||||||
Stock based compensation (options) |
0 | 0 | 0 | 0 | 308,302 | 0 | 0 | 308,302 | ||||||||||||||||||||||||
Net loss |
0 | 0 | 0 | 0 | 0 | 0 | (2,626,205 | ) | (2,626,205 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance at December 31, 2009 |
0 | 0 | 14,867,842 | 1,487 | 15,859,322 | (52,668 | ) | (14,711,146 | ) | 1,096,995 | ||||||||||||||||||||||
Common stock and warrants issued for cash during 2010 at $1.00 per share, net of offering costs |
0 | 0 | 4,230,910 | 423 | 3,248,315 | 0 | 0 | 3,248,738 | ||||||||||||||||||||||||
Preferred stock and warrants issued for cash during 2010 at $10,000 per share, net of offering costs |
400 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Exercise of warrants in exchange for promissory note |
0 | 0 | 2,700,000 | 270 | 5,399,730 | (5,400,000 | ) | 0 | 0 | |||||||||||||||||||||||
Redemption of preferred stock for repayment of promissory note |
(400 | ) | 0 | 0 | 0 | 0 | 5,400,000 | (2,092,500 | ) | 3,307,500 | ||||||||||||||||||||||
Exercise of stock options |
0 | 0 | 50,000 | 5 | 26,495 | 0 | 0 | 26,500 | ||||||||||||||||||||||||
Cashless exercise of stock options |
0 | 0 | 297,156 | 30 | (30 | ) | 0 | 0 | 0 | |||||||||||||||||||||||
Common stock issued for services during 2010 at $0.90 per share |
0 | 0 | 60,000 | 6 | 53,994 | 0 | 0 | 54,000 | ||||||||||||||||||||||||
Common stock issued for services during 2010 at $1.06 per share |
0 | 0 | 7,694 | 0 | 8,156 | 0 | 0 | 8,156 | ||||||||||||||||||||||||
Stock based compensation |
0 | 0 | 0 | 0 | 745,697 | 0 | 0 | 745,697 | ||||||||||||||||||||||||
Interest on promissory note |
0 | 0 | 0 | 0 | 0 | (1,614 | ) | 0 | (1,614 | ) | ||||||||||||||||||||||
Net loss |
0 | 0 | 0 | 0 | 0 | 0 | (6,150,142 | ) | (6,150,142 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance at December 31, 2010 |
0 | 0 | 22,213,602 | 2,221 | 25,341,679 | (54,282 | ) | (22,953,788 | ) | 2,335,830 | ||||||||||||||||||||||
Common stock and warrants issued for cash during 2011 at $1.55 per share, net of offering costs |
0 | 0 | 5,219,768 | 522 | 4,982,817 | 0 | 0 | 4,983,339 | ||||||||||||||||||||||||
Exercise of stock options |
0 | 0 | 376,000 | 38 | 382,642 | 0 | 0 | 382,680 | ||||||||||||||||||||||||
Cashless exercise of stock options |
0 | 0 | 661,061 | 66 | (66 | ) | 0 | 0 | 0 | |||||||||||||||||||||||
Stock based compensation |
0 | 0 | 119,037 | 12 | 958,109 | 0 | 0 | 958,121 | ||||||||||||||||||||||||
Interest on promissory note |
0 | 0 | 0 | 0 | 0 | (352 | ) | 0 | (352 | ) | ||||||||||||||||||||||
Redemption of promissory note |
0 | 0 | 0 | 0 | 0 | 54,634 | 0 | 54,634 | ||||||||||||||||||||||||
Net loss |
0 | 0 | 0 | 0 | 0 | 0 | (4,221,184 | ) | (4,221,184 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance at September 30, 2011 |
0 | $ | 0 | 28,589,468 | $ | 2,859 | $ | 31,665,181 | $ | 0 | ($ | 27,174,972 | ) | $ | 4,493,068 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
3
ImmunoCellular Therapeutics, Ltd.
(A Development Stage Company)
Condensed Statements of Cash Flows
(Unaudited)
For the Nine
Months Ended September 30, |
For the Nine
Months Ended September 30, |
February 25,
2004 (Inception) to September 30, |
||||||||||
2010 | 2011 | 2011 | ||||||||||
Cash flows from operating activities: |
||||||||||||
Net loss |
($ | 3,630,398 | ) | ($ | 4,221,184 | ) | ($ | 25,082,472 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||
Depreciation and amortization |
2,725 | 13,712 | 22,817 | |||||||||
Interest accrued on promissory note |
(1,264 | ) | 1,264 | 0 | ||||||||
Change in fair value of warrant liability |
(311,324 | ) | (1,517,583 | ) | 769,655 | |||||||
Stock-based compensation |
541,675 | 958,121 | 7,925,487 | |||||||||
Common stock issued for services |
0 | 0 | 98,703 | |||||||||
Common stock issued for research and development |
0 | 0 | 1,335,760 | |||||||||
Changes in assets and liabilities: |
||||||||||||
Other assets |
(91,632 | ) | (240,585 | ) | (303,873 | ) | ||||||
Accounts payable |
104,148 | 77,636 | 248,701 | |||||||||
Accrued liabilities |
73,928 | 329,557 | 605,941 | |||||||||
|
|
|
|
|
|
|||||||
Net cash used in operating activities |
(3,312,142 | ) | (4,599,062 | ) | (14,379,281 | ) | ||||||
Cash flows from investing activities: |
||||||||||||
Purchase of property and equipment |
0 | (65,108 | ) | (126,580 | ) | |||||||
Cash paid for sale of Optical Molecular Imaging, Inc. |
0 | 0 | (25,000 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net cash used in investing activities |
0 | (65,108 | ) | (151,580 | ) | |||||||
Cash flows from financing activities: |
||||||||||||
Exercise of stock options |
0 | 382,680 | 424,514 | |||||||||
Exercise of warrants |
0 | 0 | 462,748 | |||||||||
Payments on promissory note receivable |
0 | 53,018 | 53,018 | |||||||||
Proceeds from issuance of common stock and warrants under private placements, net of offering costs |
4,370,994 | 7,460,129 | 18,237,609 | |||||||||
Proceeds from issuance of preferred stock and warrants, net of offering costs |
3,779,158 | 0 | 3,779,158 | |||||||||
Proceeds from issuance of common stock |
0 | 0 | 125,247 | |||||||||
|
|
|
|
|
|
|||||||
Net cash provided by financing activities |
8,150,152 | 7,895,827 | 23,082,294 | |||||||||
|
|
|
|
|
|
|||||||
Increase (decrease) in cash and cash equivalents |
4,838,010 | 3,231,657 | 8,551,433 | |||||||||
Cash and cash equivalents, beginning of period |
1,407,256 | 5,319,776 | 0 | |||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents, end of period |
$ | 6,245,266 | $ | 8,551,433 | $ | 8,551,433 | ||||||
|
|
|
|
|
|
|||||||
Supplemental cash flows disclosures: |
||||||||||||
Interest expense paid |
$ | 0 | $ | 0 | $ | 0 | ||||||
|
|
|
|
|
|
|||||||
Income taxes paid |
$ | 0 | $ | 0 | $ | 0 | ||||||
|
|
|
|
|
|
|||||||
Supplemental non-cash financing disclosures: |
||||||||||||
Exercise of warrants in exchange for promissory note |
$ | 3,350,000 | $ | 0 | $ | 3,350,000 | ||||||
|
|
|
|
|
|
|||||||
Redemption of preferred stock for repayment of promissory note |
$ | 3,350,000 | $ | 0 | $ | 3,350,000 | ||||||
|
|
|
|
|
|
|||||||
Deemed dividend on redemption of preferred stock |
$ | 954,750 | $ | 0 | $ | 2,092,500 | ||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
4
ImmunoCellular Therapeutics, Ltd.
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
1. | Nature of Organization and Development Stage Operations |
ImmunoCellular Therapeutics, Ltd. (the Company) is a development stage company that is seeking to develop and commercialize new therapeutics to fight cancer using the immune system.
Since the Companys inception on February 25, 2004, the Company has been primarily engaged in the acquisition of certain intellectual property, together with development of its product candidates and the recent clinical testing activities for one of its vaccine product candidates, and has not generated any recurring revenues. As a result, the Company has incurred operating losses and, as of September 30, 2011, the Company had an accumulated deficit of $27,174,972. The Company expects to incur significant research, development and administrative expenses before any of its products can be launched and recurring revenues generated.
Interim Results
The accompanying condensed financial statements at September 30, 2011 and for the three and nine month periods ended September 30, 2010 and 2011 and for the period February 25, 2004 (inception) to September 30, 2011 are unaudited, but include all adjustments, consisting of normal recurring entries, which the Companys management believes to be necessary for a fair presentation of the periods presented. Interim results are not necessarily indicative of results for a full year. Balance sheet amounts as of December 31, 2010 have been derived from our audited financial statements as of that date.
The financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been condensed or omitted pursuant to such rules and regulations. The financial statements should be read in conjunction with the Companys audited financial statements in its Form 10-K for the year ended December 31, 2010. The Companys operating results will fluctuate for the foreseeable future. Therefore, period-to-period comparisons should not be relied upon as predictive of the results in future periods.
2. | Summary of Significant Accounting Policies |
Development Stage Enterprise The Company is a development stage enterprise and is devoting substantially all our present efforts to research and development. All losses accumulated since inception are considered part of the Companys development stage activities.
Liquidity As of September 30, 2011, the Company had working capital of $7,942,558, compared to working capital of $4,896,360 as of December 31, 2010. The estimated cost of completing the development of either of our current vaccine product candidates and of obtaining all required regulatory approvals to market either of those product candidates is substantially greater than the amount of funds the Company currently has available. However, the Company believes that its existing cash balances are sufficient for its currently planned level of operations for at least the next twelve months, although there is no assurance that such proceeds will be sufficient for this purpose.
Cash and cash equivalents The Company considers all highly liquid instruments with an original maturity of 90 days or less to be cash equivalents. As of December 31, 2010 and September 30, 2011, the Company had $4,500,000 and $8,437,735, respectively, of certificates of deposit. The Company places its cash and cash equivalents with high credit quality financial institutions. However, from time to time such cash balances may be in excess of the FDIC insurance limit of $250,000. As of September 30, 2011, all of our securities were fully covered by FDIC insurance and mature within the next three months. . They are classified as held-to-maturity and are measured at cost since the Company has the intent and ability to hold these securities to maturity.
5
Property and Equipment Property and equipment are stated at cost and depreciated using the straight-line methods based on the estimated useful lives (generally three to five years) of the related assets. Computer and computer equipment are depreciated over 3 years. Management continuously monitors and evaluates the realizability of recorded long-lived assets to determine whether their carrying values have been impaired. The Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the nondiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. Any impairment loss is measured by comparing the fair value of the asset to its carrying amount. Repairs and maintenance costs are expensed as incurred.
Research and Development Costs Research and development expenses consist of costs incurred for direct research and development and are expensed as incurred.
Stock Based Compensation The Company records the cost for all share-based payment transactions in the Companys condensed financial statements.
Stock option grants issued prior to March 31, 2011 to employees and officers and directors were valued using the Black-Scholes pricing model. Stock option grants made subsequent to March 31, 2011 were valued using the binomial lattice simulation model. The following assumptions were used to value the grants:
Nine Months
Ended September 30, 2010 |
Nine Months
Ended September 30, 2011 |
|||
Risk-free interest rate |
1.24% | 1.53% to 2.43% | ||
Expected dividend yield |
None | None | ||
Expected term |
3.67 years | 6.68 years | ||
Expected volatility |
102.0% | 58.8% to 79.3% |
The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2010 and 2011 was $0.62 and $1.10, respectively.
The risk-free interest rate used in the Black-Scholes valuation method is based on the implied yield currently available in U.S. Treasury securities at maturity with an equivalent term. The Company has not declared or paid any dividends and does not currently expect to do so in the future. The expected term of options represents the period that our stock-based awards are expected to be outstanding and was determined based on projected holding periods for the remaining unexercised shares. Consideration was given to the contractual terms of our stock-based awards, vesting schedules and expectations of future employee behavior. Expected volatility is based on market prices of traded options for comparable entities within our industry.
The Companys stock price volatility and option lives involve managements best estimates, both of which impact the fair value of the option calculated under the Black-Scholes and binomial lattice methodologies and, ultimately, the expense that will be recognized over the life of the option.
When options are exercised, our policy is to issue previously unissued shares of common stock to satisfy share option exercises. As of September 30, 2011, the Company had approximately 44.8 million shares of authorized but unissued common stock.
No tax benefits were attributed to the stock-based compensation expense because a valuation allowance was maintained for substantially all net deferred tax assets.
6
Income Taxes The Company accounts for federal and state income taxes under the liability method, with a deferred tax asset or liability determined based on the difference between the financial statement and tax basis of assets and liabilities, as measured by the enacted tax rates. The Companys provision for income taxes represents the amount of taxes currently payable, if any, plus the change in the amount of net deferred tax assets or liabilities. A valuation allowance is provided against net deferred tax assets if recoverability is uncertain on a more likely than not basis. The Company recognizes in its financial statements the impact of an uncertain tax position if the position will more likely than not be sustained upon examination by a taxing authority, based on the technical merits of the position. The Companys policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as operating expenses. The Company is not currently under examination by any taxing authority nor has it been notified of an impending examination. The Companys tax returns for the years ended December 31, 2010, 2009, 2008 and 2007 remain open for possible review.
The Company recognizes interest and penalties for uncertain tax positions in income tax expense. Upon adoption and as of September 30, 2011, the Company had no interest and penalty accrual or expense.
Fair Value of Financial Instruments The carrying amounts reported in the condensed balance sheets for cash, cash equivalents, short-term investments and accounts payable approximate their fair values due to their quick turnover.
Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions about the future outcome of current transactions which may affect the reporting and disclosure of these transactions. Accordingly, actual results could differ from those estimates used in the preparation of these financial statements.
Basic and Diluted Loss per Common Share Basic and diluted loss per common share are computed based on the weighted average number of common shares outstanding. Common share equivalents (which consist of options and warrants) are excluded from the computation of diluted loss per share for the three and nine months ended September 30, 2010 and the nine months ended September 30, 2011, since the effect would be antidilutive. Common share equivalents which could potentially dilute basic earnings per share in the future, and which were excluded from the computation of diluted loss per share, totaled 40,263,169 shares and 41,395,680 shares at September 30, 2010 and 2011, respectively.
Recently Issued Accounting Standards In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-4, which amends the Fair Value Measurements Topic of the Accounting Standards Codification (ASC) to help achieve common fair value measurement and disclosure requirements in U.S. GAAP and IFRS. ASU No. 2011-4 does not require additional fair value measurements and is not intended to establish valuation standards or affect valuation practices outside of financial reporting. The ASU is effective for interim and annual periods beginning after December 15, 2011. The Company will adopt the ASU as required. The ASU will affect the Companys fair value disclosures, but will not likely affect the Companys results of operations, financial condition or liquidity.
In June 2011, the FASB issued ASU No. 2011-5, which amends the Comprehensive Income Topic of the ASC. The ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders equity, and instead requires consecutive presentation of the statement of net income and other comprehensive income either in a continuous statement of comprehensive income or in two separate but consecutive statements. ASU No. 2011-5 is effective for interim and annual periods beginning after December 15, 2011. The Company will adopt the ASU as required. It will likely have no affect on the Companys results of operations, financial condition or liquidity.
7
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the Securities Exchange Commission (the SEC) did not or are not believed by management to have a material impact on the Companys present or future condensed financial statements.
3. | Property and Equipment |
Property and equipment consist of the following:
December 31, | September 30, | |||||||
2010 | 2011 | |||||||
Computers |
$ | 10,900 | $ | 10,900 | ||||
Research equipment |
10,572 | 75,680 | ||||||
|
|
|
|
|||||
21,472 | 86,580 | |||||||
Accumulated depreciation |
(9,105 | ) | (22,817 | ) | ||||
|
|
|
|
|||||
$ | 12,367 | $ | 63,763 | |||||
|
|
|
|
Depreciation expense was $908 and $5,696 for the three months ended September 30, 2010 and September 30, 2011, respectively. Depreciation expense was $2,725 and $13,712 for the nine months ended September 30, 2010 and September 30, 2011, respectively. Depreciation expense was $22,817 for the period from February 25, 2004 (date of inception) to September 30, 2011.
4. | Related-Party Transactions |
Cedars-Sinai Medical Center License Agreement
In November 2006, the Company entered into a license agreement with Cedars-Sinai Medical Center (Cedars-Sinai) under which the Company acquired an exclusive, worldwide license to its technology for use as cellular therapies, including cancer stem cell and dendritic cell-based vaccines for neurological disorders that include brain tumors and neurodegenerative disorders and other cancers. This technology is covered by a number of pending U.S. and foreign patent applications, and the term of the license will be until the last to expire of any patents that are issued covering this technology.
As an upfront licensing fee, the Company issued Cedars-Sinai 694,000 shares of its common stock and paid Cedars-Sinai $62,000. Additional specified milestone payments will be required to be paid to Cedars-Sinai when the Company initiates patient enrollment in its first Phase III clinical trial and when it receives FDA marketing approval for its first product.
The Company has agreed to pay Cedars-Sinai specified percentages of all of its sublicensing income and gross revenues from sales of products based on the licensed technology, subject to a reduction if it must make any payments to any third party whose proprietary rights would be infringed by sale of the products. To maintain its rights to the licensed technology, the Company must meet certain development and funding milestones. These milestones include, among others, commencing a Phase I clinical trial for a product candidate by March 31, 2007 and raising at least $5,000,000 in funding from equity or other sources by December 31, 2008. The Company satisfied the foregoing funding requirement in 2007 and commenced a Phase I clinical trial in May 2007, which was within the applicable cure period for the milestone requirement. Through December 31, 2009, the Company has paid Cedars-Sinai a total of $166,660 in connection with the Phase I clinical trial. The Company also was required to commence a Phase II clinical trial for a product candidate by December 31, 2008 and a waiver of this requirement was obtained from Cedars-Sinai (see Second Amendment below).
On June 16, 2008, the Company entered into a First Amendment to Exclusive License Agreement (the Amendment) with Cedars-Sinai. The Amendment amended the License Agreement to include in the Companys exclusive license from Cedars-Sinai under that agreement an epitope to CD133 and certain related intellectual property. Management believes this technology will be covered by a U.S. patent application that will be filed by the parties. Pursuant to the Amendment, the Company issued Cedars-Sinai 100,000 shares of the Companys common stock as an additional license fee for the licensed CD133 epitope technology, which will be subject to the royalty and other terms of the License Agreement.
8
On July 22, 2009, the Company entered into a Second Amendment to Exclusive License Agreement (the Second Amendment) with Cedars-Sinai to become effective August 1, 2009. The Second Amendment amended the License Agreement to revise the milestones set forth in the License Agreement that the Company must achieve in order to maintain its license rights under that agreement. The revised milestones include the replacement of a milestone that required commencement of a Phase II clinical trial for the Companys first product candidate by no later than December 31, 2008 with milestones that require commencement of a Phase I clinical trial for the Companys second product candidate by no later than June 30, 2010 and commencement of a Phase II clinical trial for one of the Companys product candidates by no later than March 31, 2012.
Effective March 23, 2010, the Company entered into a Third Amendment to Exclusive License Agreement (the Third Amendment) with Cedars-Sinai. The Third Amendment amended the License Agreement to revise the milestones set forth in the License Agreement that the Company must achieve in order to maintain its license rights under that agreement. The revised milestones include the replacement of a milestone that required commencement of a Phase I clinical trial for the Companys second product candidate by no later than June 30, 2010 and commencement of a Phase II clinical trial for one of the Companys product candidates by no later than March 31, 2012 with a requirement that the Company by September 30, 2011 either commence a Phase II clinical trial for its dendritic cell vaccine candidate or a Phase I clinical trial for its cancer stem cell vaccine candidate. The amendment also added a requirement that the Company obtain certain defined forms of equity or other funding in the amount of at least $2,500,000 by December 31, 2010 and a total of at least $5,000,000 by September 30, 2011. These funding requirements were fully satisfied as of June 30, 2011.
5. | Commitments and Contingencies: |
Operating Lease
Effective July 1, 2011, the Company renewed its lease for office space through June 30, 2012 at a monthly rental of $3,493.
Employment Agreement with Dr. Manish Singh
On May 10, 2011, the Company entered into an Employment Agreement, effective as of February 18, 2011, with Dr. Manish Singh pursuant to which Dr. Singh will continue to serve on a full-time basis as the Companys President and Chief Executive Officer for a one-year term commencing February 18, 2011. The Company is required under the Employment Agreement to use its commercially reasonable efforts to have Dr. Singh continue to serve as a member of the Companys Board of Directors during the term of the Employment Agreement. The Employment Agreement automatically renews on the one-year anniversary date of the effective date of February 18, 2011 of each year thereafter for successive one-year terms unless terminated by either party.
The Employment Agreement provides for an annual base salary of $315,000. In addition, provided that Dr. Singh continues to serve as the Companys President and Chief Executive Officer for the entire one-year term of the Employment Agreement, the Company will pay Dr. Singh a discretionary cash bonus of up to $100,000 upon the attainment of certain corporate goals.
The Employment Agreement also provides Dr. Singh a seven-year incentive stock option grant to purchase 270,000 shares of common stock under the Companys 2006 Equity Incentive Plan (the Plan) at an exercise price of $2.25 per share, which was the closing price of the Companys common stock on the date of grant. The option will vest as follows; (i) 20,000 shares on February 17, 2012, (ii) 50,000 shares on February 17, 2013, (iii) 50,000 shares on February 17, 2014, (iv) 50,000 shares upon the Company attaining a market capitalization of at least $100 million for ten consecutive trading dates, (v) 50,000 shares upon the Company attaining a market capitalization of at least $150 million for ten consecutive trading days and (vi) 50,000 shares upon the Company attaining a market capitalization of at least $200 million for ten consecutive trading days. The option may be exercised during the term that Dr. Singh provides services to the Company and for twelve months after termination for any reason except termination for cause by the Company, provided that such exercise is within the seven-year term of the option.
9
In the event that the Company terminates the Employment Agreement without cause, then (i) the Company upon such termination will be required to make a lump sum payment to Dr. Singh equal to six months of his base annual salary, (ii) any stock options granted to Dr. Singh, to the extent vested, will be retained by Dr. Singh and will be exercisable on the terms described above, and (3) the vesting of an additional number of shares subject to all options granted to Dr. Singh equal to 50% of all shares subject to such options that vest based solely on the passage of time and that have not already vested will immediately accelerate and will be exercisable on the terms described above. If Dr. Singh terminates his employment for good reason as defined in the Employment Agreement, he will receive the severance benefits described in the preceding sentence, except that 100% of his options will vest if his employment terminates for good reason following a merger or similar corporate transaction in which the Company is not the surviving entity and the surviving entity does not offer Dr. Singh an executive position at a compensation level at least equal to his then compensation under the Employment Agreement.
Employment Agreement with David Fractor
On April 4, 2011, the Company entered into an Employment Agreement with David Fractor pursuant to which Mr. Fractor will serve as the Companys Treasurer and Chief Financial Officer on a part-time basis for a three-year term, subject to termination by either party on 30 days notice. Under this agreement, Mr. Fractor receives a monthly salary of $6,000 and was granted a seven-year option to purchase 42,000 shares of the Companys common stock at a price of $2.25 per share, with such option to vest in equal monthly installments over the three-year term of the agreement.
Employment Agreement with Dr. James Bender
On May 10, 2011, the Company entered into an Employment Agreement, effective as of February 1, 2011, with Dr. James Bender pursuant to which Dr. Bender will continue to serve on a full-time basis as the Companys Vice President Product Development and Manufacturing for a one-year term commencing February 1, 2011. The Employment Agreement automatically renews on the one-year anniversary date of the effective date of February 1, 2011 of each year thereafter for successive one-year terms unless terminated by either party.
The Employment Agreement provides for an annual base salary of $175,000. In addition, provided that Dr. Bender continues to serve as the Companys Vice President Product Development and Manufacturing for the entire one-year term of the Employment Agreement, the Company will pay Dr. Bender a discretionary cash bonus of up to $35,000 upon the attainment of certain corporate goals.
The Employment Agreement also provides Dr. Bender a seven-year incentive stock option grant to purchase 120,000 shares of common stock under the Plan at an exercise price of $2.25 per share, which was the closing price of the Companys common stock on the date of grant. The option will vest as to (i) 60,000 shares in three annual installments of 20,000 shares each, with the first installment to vest on January 31, 2012; (ii) 20,000 shares upon the Company attaining a market capitalization of at least $100 million for ten consecutive trading dates; (iii) 20,000 shares upon the Company attaining a market capitalization of at least $150 million for ten consecutive trading dates; and (iv) 20,000 shares upon the Company attaining a market capitalization of at least $200 million for ten consecutive trading dates. The option may be exercised during the term that Dr. Bender provides services to the Company and for twelve months after termination for any reason except termination for cause by the Company, provided that such exercise is within the seven-year term of the option.
In the event that the Company terminates the Employment Agreement without cause, then (i) the Company upon such termination will be required to make a lump sum payment to Dr. Bender equal to six months of his base annual salary, (ii) any stock options granted to Dr. Bender, to the extent vested, will be retained by Dr. Bender and will be exercisable on the terms described above, and (iii) the vesting of an additional number of shares subject to all options granted to Dr. Bender equal to 50% of all shares subject to such options that vest solely on the passage of time and that have not already vested will immediately accelerate and will be exercisable on the terms described above. If Dr. Bender terminates his employment for good reason as defined in the Employment Agreement, he will receive the severance benefits described in the preceding sentence, except that 100% of his options will vest if his employment terminates for good reason following a merger or similar corporate transaction in which the Company is not the surviving entity and the surviving entity does not offer Dr. Bender an executive position at a compensation level at least equal to his then compensation under the Employment Agreement.
10
Employment agreement with Peter Ho
Effective September 1, 2011, the Company entered into an Employment Agreement with Mr.Peter Ho pursuant to which Mr. Ho will serve on a full-time basis as the Companys Director of Business Development and Technical Licensing for a one-year term commencing September 1, 2011. The Employment Agreement automatically renews on the anniversary date each year thereafter for successive one-year terms unless terminated by either party.
The Employment Agreement provides for an annual base salary of $130,000. In addition, provided that Mr. Ho continues to serve as the Companys Director of Business Development and Technical Licensing for the entire one-year term of the Employment Agreement, the Company will pay Mr. Ho a discretionary cash bonus of up to $19,500 upon the attainment of certain corporate goals.
The Employment Agreement also provides Mr. Ho a seven-year incentive stock option grant to purchase 30,000 shares of common stock under the Plan at an exercise price of $1.41 per share, which was the closing price of the Companys common stock on the date of grant. The option will vest in three equal annual installments. The option may be exercised during the term that Mr. Ho provides services to the Company and for three months after termination for any reason except termination for cause by the Company, provided that such exercise is within the seven-year term of the option.
Agreement with Dr. John Yu
On May 10, 2011, the Company entered into an Agreement, effective as of March 1, 2011, with Dr. John Yu pursuant to which Dr. Yu will continue to serve as the Companys Chief Scientific Officer for a one-year term commencing March 1, 2011. The term of this Agreement will automatically renew on the one-year anniversary date of the Agreement each year after March 1, 2011 for successive one-year terms unless either party terminates. Dr. Yu may also terminate the Agreement at any time upon 60 days notice.
The Agreement provides for an annual base salary of $70,000. In addition, Dr. Yu will receive a bonus of $15,000 each (a maximum total of $30,000) upon and provided that the Company achieves each of the following milestones within one year from March 1, 2011: (i) enrollment of 75 patients in the Phase II trial of ICT-107 and (ii) filing of an IND for either a new indication for ICT-107 or for another product candidate of the Company.
The Agreement also provides Dr. Yu a seven-year incentive stock option grant to purchase 50,000 shares of common stock under the Plan at an exercise price of $1.95 per share, which was the closing price of the Companys common stock on the date of grant. The option will vest in three equal annual installments, with the first vesting date to be February 29, 2012. The option may be exercised during the term that Dr. Yu provides services to the Company and for twelve months after termination for any reason except termination without cause by Dr. Yu or termination for cause by the Company, provided that such exercise is within the seven-year term of the option. All of the options granted to Dr. Yu will vest if his services terminate following a merger or similar corporate transaction in which the Company is not the surviving entity and the surviving entity does not offer Dr. Yu an executive position at a compensation level at least equal to his then compensation level under the Agreement.
Research and Development
In connection with the Cedars-Sinai Medical Center License Agreement, the Company has certain commitments as described in Note 4.
6. | Shareholders Equity |
Common Stock
In March 2010, the Company raised $1,654,686 (after commissions and offering expenses) from the sale of 1,740,000 shares of common stock and warrants to purchase 696,000 shares of common stock at an exercise price of $1.15 per share, to various investors in a private placement. (See Warrants and Warrant Liabilities below.)
11
In May 2010, the Company raised $2,716,308 (after commissions and offering expenses) from the sale of 2,490,910 shares of common stock and warrants to purchase 1,245,455 shares of common stock at an exercise price of $1.50 per share, to various investors in a private placement. (See Warrants and Warrant Liabilities below)
In February 2011, the Company raised $7,460,119 (after commissions and offering expenses) from the sale of 5,219,768 shares of common stock and warrants to purchase 2,609,898 shares of common stock at an exercise price of $2.25 per share, to various investors in a private placement. (See Warrants and Warrant Liabilities below)
Preferred Stock
On December 3, 2009, the Company entered into a Preferred Stock Purchase Agreement dated as of December 3, 2009 (the Preferred Stock Agreement) with Socius Capital Group, LLC, a Delaware limited liability company d/b/a Socius Life Sciences Capital Group, LLC (the Investor). Pursuant to the Preferred Stock Agreement, the Company will issue to the Investor up to $10,000,000 of the Companys newly created Series A Preferred Stock (the Preferred Stock). The purchase price of the Preferred Stock is $10,000 per share. The shares of Preferred Stock that are issued to the Investor will bear a cumulative dividend of 10.0% per annum, payable in shares of Preferred Stock, will be redeemable under certain circumstances and will not be convertible into shares of the Companys common stock. Subject to the terms and conditions of the Preferred Stock Agreement, the Company has the right to determine (1) the number of shares of Preferred Stock that it will require the Investor to purchase from the Company, up to a maximum purchase price of $10,000,000, (2) whether it will require the Investor to purchase Preferred Stock in one or more traunches, and (3) the timing of such required purchase or purchases of Preferred Stock.
The terms of the Preferred Stock are set forth in a Certificate of Designations of Preferences, Rights and Limitations of Series A Preferred Stock that the Company filed with the Delaware Secretary of State on December 3, 2009.
Pursuant to the Preferred Stock Agreement, the Company agreed to pay the Investor a commitment fee of $500,000 (the Commitment Fee), with $250,000 payable when the Company makes its first election to require the Investor to purchase shares of Preferred Stock and with the remaining $250,000 payable when the aggregate amount of Preferred Stock purchased by the Investor equals at least $5,000,000; provided, however, that the first $250,000 portion of the Commitment Fee will be due and payable on the six-month anniversary of the effective date of the registration statement described below even if no sales of Preferred Stock to the Investor have occurred by that date. The Company has the right to elect to pay each installment of the Commitment Fee in immediately available funds or by issuance of shares of common stock. In January 2010, the Company accrued $250,000 in commitment fees associated with the Preferred Stock Agreement that were subsequently paid in cash.
Concurrently with its execution of the Preferred Stock Agreement, the Company issued to the Investor a warrant (the Warrant) to purchase shares of common stock with an aggregate exercise price of up to $13,500,000 depending upon the amount of Preferred Stock that is purchased by the Investor. Each time that the Company requires the Investor to purchase shares of Preferred Stock, a portion of the Warrant will become exercisable by the Investor over a five-year period for a number of shares of common stock equal to (1) the aggregate purchase price payable by the Investor for such shares of Preferred Stock multiplied by 135%, with such amount divided by (2) the per share Warrant exercise price. The initial exercise price under the Warrant is $1.04 per share of common stock. Thereafter, the exercise price for each portion of the Warrant that becomes exercisable upon the Companys election to require the Investor to purchase Preferred Stock will equal the closing price of the common stock on the date that the Company delivers its election notice. The Investor is entitled to pay the Warrant exercise price in immediately available funds, by delivery of a secured promissory note or, if a registration statement covering the resale of the common stock subject to the Warrant is not in effect, on a cashless basis.
Pursuant to the Preferred Stock Agreement, the Company agreed to file with the Securities and Exchange Commission a registration statement covering the resale of the shares of common stock that are issuable to the Investor under the Warrant and in satisfaction of the Commitment Fee. The registration statement was deemed effective on January 22, 2010. The 600,000 shares of common stock registered for the Commitment Fee are held in escrow by the Company.
12
On May 2, 2010, the Company issued and sold 400 shares of the Preferred Stock to Socius Capital Group, LLC pursuant to the terms of the Preferred Stock Agreement. The aggregate purchase price for the Preferred Stock was $4,000,000 (less $220,842 in Commitment Fees and offering expenses). Under the terms of the Preferred Stock Agreement, Socius remains obligated, from time to time until December 3, 2012, to purchase up to an additional 600 shares of Preferred Stock at a purchase price of $10,000 per share upon notice from the Company to Socius, and subject to the satisfaction of certain conditions, as set forth in the Preferred Stock Agreement.
In connection with the foregoing transaction, a portion of the warrants held by an affiliate of Socius became vested and exercisable covering 2,700,000 shares of the Companys common stock for a five-year period at an exercise price of $2.00 per share under the terms of the Preferred Stock Agreement. In consideration of Socius agreeing to grant the Company certain waivers under the Preferred Stock Agreement, this affiliate also became entitled to purchase up to an additional 1,350,000 shares of the Companys common stock at an exercise price of $2.50 per share. On May 2, 2010, the affiliate of Socius exercised a portion of its warrant for 1,675,000 shares and paid the $3,350,000 exercise price for these shares by delivering a four-year full recourse promissory note for this amount, as permitted by the Preferred Stock Agreement. The Company immediately thereafter redeemed approximately 248 shares of the Preferred Stock by offsetting the $3,350,000 redemption price for these shares against the $3,350,000 owed to the Company under the note. On December 2, 2010, the affiliate of Socius exercised the remaining portion of its warrant for 1,025,000 shares and paid the $2,050,000 exercise price for these shares by delivering a four-year full recourse promissory note for this amount, as permitted by the Preferred Stock Agreement. The Company immediately thereafter redeemed approximately 152 shares of the Preferred Stock by offsetting the $2,050,000 redemption price for these shares against the $2,050,000 owed to the Company under the note. (See Warrants and Warrant Liabilities below.)
Stock Options
In February 2005, the Company adopted an Equity Incentive Plan (Plan). Pursuant to the Plan, a committee appointed by the Board of Directors may grant, at its discretion, qualified or nonqualified stock options, stock appreciation rights and may grant or sell restricted stock to key individuals, including employees, nonemployee directors, consultants and advisors. Option prices for qualified incentive stock options (which may only be granted to employees) issued under the plan may not be less than 100% of the fair market value of the common stock on the date the option is granted (unless the option is granted to a person who, at the time of grant, owns more than 10% of the total combined voting power of all classes of stock of the Company; in which case the option price may not be less than 110% of the fair market value of the common stock on the date the option is granted). Option prices for nonqualified stock options issued under the Plan are at the discretion of the committee and may be equal to, greater or less than fair market value of the common stock on the date the option is granted. The options vest over periods determined by the Board of Directors and are exercisable no later than ten years from date of grant (unless they are qualified incentive stock options granted to a person owning more than 10% of the total combined voting power of all classes of stock of the Company, in which case the options are exercisable no later than five years from date of grant). As of September 30, 2011, the Company has reserved 6,000,000 shares of common stock for issuance under the Plan and options to purchase 3,430,404 common shares have been granted under the Plan that are currently outstanding. See Subsequent Events Note for increase in the shares reserved for the Plan.
The following is a summary of stock option grants issued outside the Plan:
In January 2007, the Company granted an option to purchase 1,500,000 shares of its common stock at an exercise price of $1.10 per share to the Chairman of the Companys Scientific Advisory Board.
In November 2006, the Company granted an option to purchase 300,000 shares of its common stock at an exercise price of $1.00 per share to an affiliate of the Companys then Chairman of the Board.
In November 2006, the Company granted an option to purchase 5,933,424 shares of its common stock at an exercise price of $1.00 per share to a Board member in connection with the Cedars-Sinai license acquisition.
13
The following table summarizes stock option activity for the Company during the nine months ended September 30, 2011:
Options |
Weighted
Average Exercise Price |
Weighted
Average Remaining Contractual Term |
Aggregate
Intrinsic Value |
|||||||||||||
Outstanding December 31, 2010 |
11,094,845 | $ | 0.94 | |||||||||||||
Granted |
737,000 | $ | 2.20 | |||||||||||||
Exercised |
(1,250,017 | ) | $ | 0.63 | ||||||||||||
Forfeited or expired |
(118,000 | ) | $ | 0.86 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Outstanding September 30, 2011 |
10,463,828 | $ | 1.06 | 4.99 | $ | 5,771,755 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Vested or expected to vest at September 30, 2011 |
9,708,499 | $ | 0.98 | 4.98 | $ | 5,737,805 | ||||||||||
|
|
|
|
|
|
|
|
As of September 30, 2011, the total unrecognized compensation cost related to unvested stock options amounted to $570,661, which will be amortized over the weighted-average remaining requisite service period of less than one year.
Warrants
In connection with the March 2010 common stock private placement, the Company issued to the investors warrants to purchase 696,000 shares of the Companys common stock at $1.15 per share. The warrants have a term of 26 months from the date of issuance. On September 30, 2011, warrants to purchase 696,000 shares of the Companys common stock were outstanding related to this private placement. (see Warrant Liabilities below)
In connection with the May 2010 common stock private placement, the Company issued to the investors warrants to purchase 1,245,455 shares of the Companys common stock at $1.50 per share. The warrants have a term of 36 months from the date of issuance. On September 30, 2011, warrants to purchase 1,245,455 shares of the Companys common stock were outstanding related to this private placement. (see Warrant Liabilities below)
In connection with the May 2010 Preferred Stock sale, the Company issued warrants to purchase 2,700,000 shares of common stock at an exercise price of $2.00 held by an affiliate of Socius. The warrants have a term of five-year from the date of issuance. In consideration of Socius agreeing to grant the Company certain waivers under the Preferred Stock Purchase Agreement, this affiliate also became entitled to purchase up to an additional 1,350,000 shares of the Companys common stock at an exercise price of $2.50 per share. In May 2010, the affiliate of Socius exercised a portion of its warrant for 1,675,000 shares and paid the $3,350,000 exercise price for these shares by delivering a four-year full recourse promissory note for this amount, as permitted by the Preferred Stock Purchase Agreement. The Company immediately thereafter redeemed approximately 248 shares of the Preferred Stock by offsetting the $3,350,000 redemption price for these shares against the $3,350,000 owed to the Company under the note. In December 2010, the affiliate of Socius exercised the remaining portion of its warrant for 1,025,000 shares and paid the $2,050,000 exercise price for these shares by delivering a four-year full recourse promissory note for this amount, as permitted by the Preferred Stock Purchase Agreement. The Company immediately thereafter redeemed approximately 152 shares of the Preferred Stock by offsetting the $2,050,000 redemption price for these shares against the $2,050,000 owed to the Company under the note. As of September 30, 2011, no warrants to purchase of the Companys common stock at $2.00 were outstanding and warrants to purchase 1,350,000 shares of the Companys common stock at $2.50 were outstanding related to this private placement. (See Warrant Liabilities below.)
In connection with an investor relations agreement in December 2010, the Company issued a two-year warrant to purchase 50,000 shares of the Companys common stock at an exercise price of $1.60.
14
In connection with the February 2011 common stock private placement, the Company issued to the investors warrants to purchase 2,609,898 shares of the Companys common stock at $2.25 per share. The warrants have a five-year term from the date of issuance. As of March 31, 2011, warrants to purchase 2,609,898 shares of the Companys common stock were outstanding related to this private placement. (See Warrant Liabilities below.)
Warrant Liability
In connection with the March 2010 common stock private placement, the Company issued to the investors warrants to purchase 696,000 shares of the Companys common stock at $1.15 per share. Of the total proceeds from the March 2010 common stock private placement, $257,520 was allocated to the freestanding warrants associated with the units based upon the fair value of the warrants determined under the Black Scholes option pricing model. The warrants contain a provision whereby the warrant exercise price would be decreased in the event that future common stock issuances are made at a price less than $1.00. Due to the potential variability of their exercise price, these warrants do not qualify for equity treatment, and therefore are recognized as a liability. The warrant liability is adjusted to fair value each reporting period, and any change in value is recognized in the statement of operations. Prior to 2011, the Company concluded that Black-Scholes method of valuing the price adjustment feature does not materially differ from the valuation of such warrants using the Monte Carlo or lattice simulation models, and therefore, the use of the Black-Scholes valuation model was considered a reasonable method to value the warrants. The assumptions used in the Black Scholes model for determining the initial fair value of the warrants were as follows: (i) dividend yield of 0%; (ii) expected volatility of 102%, (iii) risk-free interest rate of 1.00%, and (iv) contractual life of 26 months. For the nine months ended September 30, 2010, the Company recorded a charge to other income for the change in fair value of warrant liability of $20,880. During the nine months ended September 30, 2011, the Company determined that it was more appropriate to value the warrants using a binomial lattice simulation model. The lattice simulation model used by the Company at September 30, 2011, assumed (i) dividend yield of 0%; (ii) expected volatility of 64%; (iii) risk free rate of 0.08% and (iv) expected term of .67 years. Based upon this model, the Company recorded a credit to other income of $346,608 and $165,648 for the three and nine months ended September 30, 2011 respectively. As of September 30, 2011, the carrying value of the warrant liability is $307,632.
In connection with the May 2010 common stock private placement, the Company issued to the investors warrants to purchase 1,245,455 shares of the Companys common stock at $1.50 per share. Of the total proceeds from the May 2010 common stock private placement, $834,455 was allocated to the freestanding warrants associated with the units based upon the fair value of the warrants determined under the Black Scholes option pricing model. The warrants contain a provision whereby the warrant exercise price would be decreased in the event that future common stock issuances are made at a price less than $1.00. Due to the potential variability of their exercise price, these warrants do not qualify for equity treatment, and therefore are recognized as a liability. The warrant liability is adjusted to fair value each reporting period, and any change in value is recognized in the statement of operations. Prior to 2011, the Company concluded that the Black-Scholes method of valuing the price adjustment feature does not materially differ from the valuation of such warrants using the Monte Carlo or binomial lattice simulation models, and therefore, the use of the Black-Scholes valuation model was considered a reasonable method to value the warrants. The assumptions used in the Black Scholes model for determining the initial fair value of the warrants were as follows: (i) dividend yield of 0%; (ii) expected volatility of 102%, (iii) risk-free interest rate of 1.375%, and (iv) contractual life of 36 months. During 2011, the Company determined that it was more appropriate to value the warrants using a binomial lattice simulation model. The lattice simulation model used by the Company at September 30, 2011, assumed (i) dividend yield of 0%; (ii) expected volatility of 75%; (iii) risk free rate of 0.21% and (iv) expected term of 1.67 years. Based upon this model, the Company recorded a credit to other income of $481,991 and $312,609 for the three and nine months ended September 30, 2011 respectively. As of September 30, 2011, the carrying value of the warrant liability is $621,482.
In connection with the May 2010 Preferred Stock sale, the Company vested warrants to purchase 2,700,000 shares of common stock at an exercise price of $2.00 held by an affiliate of Socius and issued warrants to purchase an additional 1,350,000 shares of the Companys common stock at an exercise price of $2.50 per share. Of the total proceeds from the May 2010 preferred stock sale, $5,710,500 was allocated to the freestanding warrants associated with the units based upon the fair value of these warrants determined under the Black Scholes option pricing model. The excess of the value of the freestanding warrants over the net proceeds of $1,931,342 was charged to change in fair value of warrant liability in the statement of operations. The warrants contain a provision whereby the warrant may be settled for cash in connection with a change of control with a private company. Due to the potential
15
variability of their exercise price, these warrants do not qualify for equity treatment, and therefore are recognized as a liability. The warrant liability is adjusted to fair value each reporting period and any change in value is recognized in the statement of operations. Prior to 2011 the Company concluded that the Black-Scholes method of valuing the price adjustment feature does not materially differ from the valuation of such warrants using the Monte Carlo or binomial lattice simulation models, and therefore, the use of the Black-Scholes valuation model was considered a reasonable method to value the warrants. The assumptions used in the Black Scholes model for determining the initial fair value of the warrants were as follows: (i) dividend yield of 0%; (ii) expected volatility of 102%, (iii) risk-free interest rate of 2.50%, and (iv) contractual life of 60 months. During 2011, the Company determined that it was more appropriate to value the warrants using a binomial lattice simulation model. The lattice simulation model used by the Company at September 30, 2011, assumed (i) dividend yield of 0%; (ii) expected volatility of 79%; (iii) risk free rate of 0.60% and (iv) expected term of 3.67 years. Based upon this model, the Company recorded a credit to other income of $434,700 and $383,400 for the three and nine months ended September 30, 2011 respectively. As of September 30, 2011, the carrying value of the warrant liability is $791,100. In May 2010, the affiliate of Socius exercised a portion of its $2.00 warrants for 1,675,000 shares, which reduced warrant liabilities by $2,395,250. In December 2010, the affiliate of Socius exercised a portion of its $2.00 warrants for 1,025,000 shares, which reduced warrant liabilities by $912,250 and eliminated the remaining liability associated with the $2.00 warrants.
In connection with the February 2011 common stock private placement, the Company issued to the investors warrants to purchase 2,609,898 shares of the Companys common stock at $2.25 per share. Of the total proceeds from the February 2011 common stock private placement, $2,476,790 was allocated to the freestanding warrants associated with the units based upon the fair value of the warrants determined under the Binomial lattice model. The warrants contain a provision whereby the warrant exercise price would be decreased in the event that certain future common stock issuances are made at a price less than $1.55. Due to the potential variability of their exercise price, these warrants do not qualify for equity treatment, and therefore are recognized as a liability. The warrant liability is adjusted to fair value each reporting period, and any change in value is recognized in the statement of operations. The Company initially valued these warrants using a binomial lattice simulation model assuming (i) dividend yield of 0%; (ii) expected volatility of 146%; (iii) risk free rate of 1.96% and (iv) expected term of 5 years. Based upon those calculations, the Company calculated the initial valuation of the warrants to be $2,476,790. As of September 30, 2011, the Company revalued the warrants using the lattice simulation model assuming (i) dividend yield of 0%; (ii) expected volatility of 75%; (iii) risk free rate of 0.80% and (iv) expected term of 4.40 years. Based upon this model, the Company recorded a credit to other income of $1,023,179 and $655,926 for the three and nine months ended September 30, 2011 respectively. As of September 30, 2011, the carrying value of the warrant liability is $1,820,864.
Warrant
Liabilities |
||||
Balance - December 31, 2010 |
$ | 2,581,871 | ||
Issuance of warrants |
2,476,790 | |||
Exercise of warrants |
| |||
(Gain) or loss included in earnings |
(1,517,583 | ) | ||
Transfers in and out/or out of Level 3 |
| |||
|
|
|||
Balance - September 30, 2011 |
$ | 3,541,078 | ||
|
|
Promissory Note
In October 2009, the Companys former President exercised stock options for 150,479 shares of common stock and as provided under the stock option agreement provided the Company with a full recourse five-year promissory note bearing interest of 2.59% per annum. The promissory note is secured by a pledge of shares being acquired with all proceeds of any sale to be applied first to retire in full the promissory note. The Company recorded the promissory note as an offset against shareholders equity. This note plus accrued interest was paid in full during the nine months ended September 30, 2011. For the nine months ended September 30, 2010, and 2011 the Company recorded interest income of $1,264 and $352 respectively.
7. | Comprehensive Loss |
For the nine months ended September 30, 2010 and 2011, there was no other comprehensive income or loss and, accordingly, a Statement of Comprehensive Loss has not been presented. Comprehensive income would normally include: foreign currency translation adjustments, a change in the market value of a futures contract that qualifies as a hedge of an asset reported at fair value, a net loss recognized as an additional pension liability not yet recognized as net periodic pension cost, and unrealized holding gains and losses on available-for-sale securities.
16
8. | Subsequent Events |
Increase in Authorized shares of Common Stock
On October 24, 2011, the Companys shareholders voted to increase the number of authorized shares of common stock from 74 million to 99 million.
Increase in Shares Reserved for Equity Incentive Plan
On October 24, 2011, the Companys shareholders voted to increase the number of authorized shares reserved for the Companys Equity Incentive Plan from 6 million to 8 million.
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. |
Throughout this Quarterly Report on Form 10-Q, the terms we, us, our, and our company refer to ImmunoCellular Therapeutics, Ltd., a Delaware corporation.
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report contains forward-looking statements, which reflect the views of our management with respect to future events and financial performance. These forward-looking statements are subject to a number of uncertainties and other factors that could cause actual results to differ materially from such statements. Forward-looking statements are identified by words such as anticipates, believes, estimates, expects, plans, projects, targets and similar expressions. Readers are cautioned not to place undue reliance on these forward-looking statements, which are based on the information available to management at this time and which speak only as of this date. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a discussion of some of the factors that may cause actual results to differ materially from those suggested by the forward-looking statements, please read carefully the information in the Risk Factors section in our Form 10-K for the year ended December 31, 2010. The identification in this Quarterly Report of factors that may affect future performance and the accuracy of forward-looking statements is meant to be illustrative and by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty.
Overview
On January 31, 2006, we completed a merger pursuant to which Spectral Molecular Imaging, Inc. became our wholly owned subsidiary. At the time of the merger, we had virtually no assets or liabilities, and we had not conducted any business operations for several years. In connection with the merger, we changed our name from Patco Industries, Ltd. to Optical Molecular Imaging, Inc. and replaced our officers and directors with those of Spectral Molecular Imaging. Although we acquired Spectral Molecular Imaging in the merger, for accounting purposes the merger was treated as a reverse merger since the stockholders of Spectral Molecular Imaging acquired a majority of our outstanding shares of common stock and the directors and executive officers of Spectral Molecular Imaging became our directors and executive officers. Accordingly, our financial statements contained in this Report and the description of our results of operations and financial condition reflect the operations of Spectral Molecular Imaging through September 2006, when we sold that subsidiary and all of its operations to a third party.
In November 2006, we acquired an exclusive, worldwide license from Cedars-Sinai Medical Center for certain cellular-based therapy technology that we are developing for the potential treatment of brain tumors and other forms of cancer and neurodegenerative disorders. We recently completed a Phase I clinical trial of a vaccine product candidate for the treatment of glioblastoma multiforme based on this technology.
In February 2008, we acquired certain monoclonal antibody related technology owned by Molecular Discoveries LLC. This technology consists of (1) a platform technology referred to by Molecular Discoveries as DIAAD for the potentially rapid discovery of targets (antigens) and monoclonal antibodies for diagnosis and treatment of diverse human diseases and (2) certain monoclonal antibody candidates for the potential detection and treatment of multiple myeloma, small cell lung, pancreatic and ovarian cancers.
17
Plan of Operation
We are a development stage company that is seeking to develop and commercialize new therapeutics to fight cancer using the immune system.
Since our companys inception on February 25, 2004, we have been primarily engaged in the acquisition of certain intellectual property, together with the recent clinical testing activities for one of our vaccine product candidates, and have not generated any recurring revenues. As a result, we have incurred operating losses and, as of September 30, 2011, we had an accumulated deficit of $27,174,972. We expect to incur significant research, development and administrative expenses before any of our products can be launched and recurring revenues, if ever, are generated.
Critical Accounting Policies
Managements discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to impairment of long-lived assets, including finite lived intangible assets, accrued liabilities and certain expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.
Our significant accounting policies are summarized in Note 2 of our financial statements for the period from February 25, 2004 to September 30, 2011. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements:
Development Stage Enterprise
We are a development stage enterprise as defined by FASB ASC Topic 915, Development Stage Enterprises. We are devoting substantially all of our present efforts to research and development. All losses accumulated since inception are considered as part of our development stage activities.
Research and Development Costs
Although we believe that our research and development activities and underlying technologies have continuing value, the amount of future benefits to be derived from them is uncertain. Research and development costs are therefore expensed as incurred rather than capitalized. During the nine months ended September 30, 2010 and 2011, we recorded an expense of $1,815,689 and $3,016,562, respectively, related to research and development activities.
Stock-Based Compensation
FASB ASC Topic 718, Compensation-Stock Based require that the cost resulting from all share-based payment transactions be recognized in our condensed financial statements.
We adopted the fair value recognition provisions of ASC Topic 718 utilizing the modified-prospective-transition method. Under this transition method, compensation cost recognized during the twelve months ended December 31, 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated, and (b) compensation expense for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated. Under the modified-prospective-transition method, results for the prior periods have not been restated.
18
Results of Operations
Three months ended September 30, 2010 and 2011
Revenues
We had no revenues during the three months ended September 30, 2010 and 2011. We do not expect to generate any operating revenues during 2011.
Expenses
General and administrative expenses for the three months ended September 30, 2010 and 2011 were $495,292 and $634,241 respectively. The increase in general and administrative expenses is primarily due to increased personnel costs, investor relations expenditures and professional fees.
Research and development expenses for the three months ended September 30, 2010 and 2011 were $1,126,733 and $1,241,165, respectively. During the third quarter of 2010, we incurred expenses associated with the preparation of our planned Phase II clinical study for our dendritic cell based cancer vaccine product candidate for the treatment of glioblastoma. Our research and development expenses during the third quarter of 2011 reflect our on-going expenses associated with this clinical trial.
We had $210,339 of non-cash expenses for the three months ended September 30, 2010, consisting of $209,431 of stock based compensation and $908 of depreciation expense. During the three months ended September 30, 2011, we recorded $635,014 of other income related to the decrease in the fair value of our warrant liabilities. We had $329,979 of non-cash expenses for the three months ended September 30, 2011, consisting of $324,283 of stock based compensation and $5,696 of depreciation expense. During the three months ended September 30, 2011, we recorded $2,286,478 of other income related to the decrease in the fair value of our warrant liabilities.
Overall results
We incurred a net loss of $1,195,430 for the three months ended September 30, 2010, compared to net income of $87,912 during the same period of 2011. During the three months ended September 30, 2011, our overall results of operations benefited from $2,286,478 reduction in the warrant liability.
Nine months ended September 30, 2010 and 2011
Revenues
We had no revenues during the nine months ended September 30, 2010 and 2011. We do not expect to generate any operating revenues during 2011.
Expenses
General and administrative expenses for the nine months ended September 30, 2010 and 2011 were $1,586,930 and $1,767,852, respectively. The increase in general and administrative expenses is primarily due to increased personnel costs, investor relations expenditures and professional fees.
Research and development expenses for the nine months ended September 30, 2010 and 2011 were $1,815,689 and $3,016,562, respectively. The increase in research and development expenses is primarily due to increased costs associated with the Phase II clinical study for our dendritic cell based cancer vaccine product candidate for the treatment of glioblastoma.
19
We had $544,400 of non-cash expenses for the nine months ended September 30, 2010, consisting of $541,675 of stock based compensation and $2,725 of depreciation expense. During the nine months ended September 30, 2010, we recorded $311,324 of other income related to the decrease in the fair value of our warrant liabilities. We had $971,834 of non-cash expenses for the nine months ended September 30, 2011, consisting of $958,121 of stock based compensation and $13,712 of depreciation expense. During the nine months ended September 30, 2011, we recorded $1,517,583 of other income related to the decrease in the fair value of our warrant liabilities.
Loss
We incurred a net loss of $3,630,398 and $4,221,184 for the nine months ended September 30, 2010 and 2011, respectively.
Liquidity and Capital Resources
As of September 30, 2011, we had working capital of $7,942,558, compared to working capital of $4,896,360 as of December 31, 2010.
We do not currently anticipate that we will derive any revenues from either product sales or licensing during the foreseeable future. We do not have any bank credit lines and have financed all of our prior operations through the sale of securities.
The estimated cost of completing the development of either of our current vaccine product candidates and of obtaining all required regulatory approvals to market either of those product candidates is substantially greater than the amount of funds we currently have available. We believe that our existing cash balances will be sufficient to fund our currently planned level of operations for at least the next twelve months. We will seek to obtain additional funds through various financing sources, including possible sales of our securities, and in the longer term through potential strategic alliances with other pharmaceutical or biopharmaceutical companies.
In December 2009, we entered into an agreement with Socius Capital under which Socius Capital has agreed to purchase from us from time to time an aggregate of up to $10 million of our preferred stock and we sold them $4 million of these shares in May 2010. However, Socius Capitals obligation to purchase the remaining $6 million of shares of our preferred stock is subject to our satisfying certain conditions at that time. There is no assurance that we will be able to satisfy those conditions if we wish to sell shares of our preferred stock to Socius Capital or that Socius Capital will have ability to complete these purchases. If we are unsuccessful or only partly successful in our efforts to secure additional funding, we may find it necessary to suspend or terminate some or all of our product development and other activities.
As of September 30, 2011, we had no long-term debt obligations, no capital lease obligations, no material purchase obligations or other similar long-term liabilities. In addition, we have no financial guarantees, debt or lease agreements or other arrangements that could trigger a requirement for an early payment or that could change the value of our assets, and we do not engage in trading activities involving non-exchange traded contracts.
Cash Flows
We used $3,312,142 of cash in our operations for the nine months ended September 30, 2010, compared to $4,599,062 for the nine months ended September 30, 2011. During the nine months ended September 30, 2011, we significantly expanded our research and development activities.
20
During the nine months ended September 30, 2010, we did not use any cash in our investing activities. During the nine months ended September 30, 2011, we purchased $65,108 of equipment to support our research and development activities.
We received $8,150,152 from our private placements of our securities that we completed during the nine months ended September 30, 2010. During the nine months ended September 30, 2011, we received $7,460,129 from the issuance of common stock and warrants. Additionally, during the nine months ended September 30, 2011, we received $382,680 from the exercise of stock options and $53,018 from the redemption of a promissory note receivable.
Inflation and changing prices have had no effect on our net sales and revenues or on our income from continuing operations over our two most recent fiscal years.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Not Applicable.
Item 4. | Controls and Procedures |
As of the end of the fiscal quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, regarding the effectiveness of the design and operation of our disclosure controls and procedures pursuant to SEC Rule 15d-15(b) of the Exchange Act. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of September 30, 2011, (i) our disclosure controls and procedures were effective to ensure that information that is required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported or submitted within the time period specified in the rules and forms of the SEC and (ii) our disclosure controls and procedures were effective to provide reasonable assurance that material information required to be disclosed by us in the reports we file or submit under the Exchange Act was accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure. There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We do not expect that our disclosure controls and procedures and internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. The design of any system of controls also is based in part upon assurance that any design will succeed in achieving its stated goals under all potential future conditions. However, controls may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
21
OTHER INFORMATION
Item 1. | Legal Proceedings |
None.
Item 1A. | Risk Factors |
Not applicable.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
Item 3. | Defaults Upon Senior Securities |
None.
Item 4. | Removed and Reserved |
Item 5. | Other Information |
Item 6. | Exhibits |
** | Pursuant to Rule 406T of Regulation S-T, the information in Exhibit 101 (a) is furnished with this Quarterly Report on Form 10-Q/A and is not deemed to be filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, (b) is deemed not to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and (c) is not otherwise subject to liability under those sections. |
22
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: November 14, 2011 | IMMUNOCELLULAR THERAPEUTICS, LTD. | |||||
By: |
/s/ Manish Singh, Ph.D. |
|||||
Name: | Manish Singh, Ph.D. | |||||
Title: |
President and Chief Executive Officer (Principal Executive Officer) |
23
IMMUNOCELLULAR THERAPEUTICS, LTD.
FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2011
NEEDS UPDATE
* | Indicates a management contract or compensatory plan or arrangement. |
** | Pursuant to Rule 406T of Regulation S-T, the information in Exhibit 101 (a) is furnished with this Quarterly Report on Form 10-Q/A and is not deemed to be filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, (b) is deemed not to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and (c) is not otherwise subject to liability under those sections. |
24
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
IMMUNOCELLULAR THERAPEUTICS, LTD.
(Under Section 242 of the General Corporation
Law of the State of Delaware)
ImmunoCellular Therapeutics, Ltd., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows:
A. The name of the corporation is ImmunoCellular Therapeutics, Ltd. The original Certificate of Incorporation of the corporation was filed with the Delaware Secretary of State on March 20, 1987 under the name Redwing Capitol Corp. The corporation changed its name to Redwing Ventures Corp. on November 23, 1987, corrected the name to Redwing Ventures, Inc. on December 28, 1987, changed its name to Patco Industries, Ltd. on June 16, 1989, an Amended and Restated Certificate of Incorporation was filed on January 30, 2006 which included changing its name to Optical Molecular Imaging, Inc., a Certificate of Amendment of Amended and Restated Certificate of Incorporation was filed on November 2, 2006 to change its name to ImmunoCellular Therapeutics, Ltd., a Certificate of Amendment of Amended and Restated Certificate of Incorporation was filed on May 8, 2007.
B. This Certificate of Amendment was duly adopted by the corporations directors and stockholders at a meeting held on October 24, 2011 in accordance with the applicable provisions of Sections 228 and 242 of the Delaware General Corporation Law.
C. The Amended and Restated Certificate of Incorporation, as heretofore amended, is hereby further amended by changing Section 1 of Article FOURTH so that, as amended, it shall be and read in full as follows:
FOURTH
Section 1. Authorized Capital Stock . The Company is authorized to issue two classes of capital stock, designated Common Stock and Preferred Stock. The total number of shares of capital stock that the Company is authorized to issue is 100,000,000 shares, consisting of 99,000,000 shares of Common Stock, par value $0.0001 per share, and 1,000,000 shares of Preferred Stock, par value $.0001 per share.
IN WITNESS WHEREOF, the corporation has caused this Certificate to be signed by John S. Yu, its Secretary, this 11th day of November, 2011.
ImmunoCellular Therapeutics, Ltd. | ||
By: |
/s/ John S. Yu |
|
Name: | John S. Yu | |
Title: | Secretary |
EXHIBIT 4.1
2006 EQUITY INCENTIVE PLAN
OF
IMMUNOCELLULAR THERAPEUTICS, LTD.
(As Amended and Restated as of October 24, 2011)
1. | PURPOSES OF THE PLAN |
The purposes of the 2006 Equity Incentive Plan (Plan) of IMMUNOCELLULAR THERAPEUTICS, LTD., a Delaware corporation formerly known as Patco Industries, Ltd. and Optical Molecular Imaging, Inc. (the Company), are to:
1.1 Encourage selected employees, directors, consultants and advisers to improve operations and increase the profitability of the Company;
1.2 Encourage selected employees, directors, consultants and advisers to accept or continue employment or association with the Company or its Affiliates; and
1.3 Increase the interest of selected employees, directors, consultants and advisers in the Companys welfare through participation in the growth in value of the common stock of the Company, par value $.001 per share (the Common Stock). The Company intends to effect a .00434-for-1 reverse stock split of the Common Stock shortly after the adoption of this Plan. Accordingly, all references in this Plan to the number of shares of Common Stock for any purpose assume that the .4032258-for-1 reverse stock split has been effected and represent shares after such stock split.
2. | TYPES OF AWARDS; ELIGIBLE PERSONS |
2.1 The Administrator (as defined below) may, from time to time, take the following action, separately or in combination, under the Plan: (i) grant incentive stock options (ISOs) intended to satisfy the requirements of Section 422 of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the Code); (ii) grant non-qualified options (NQOs, and together with ISOs, Options); (iii) grant or sell Common Stock subject to restrictions (restricted stock) and (iv) grant stock appreciation rights (in general, the right to receive the excess of the fair market value of Common Stock on the exercise date over its fair market value on the grant date (SARs)), either in tandem with Options or as separate and independent grants. Any such awards may be made to employees, including employees who are officers or directors, and to individuals described in Section 1 of this Plan who the Administrator believes have made or will make a contribution to the Company or any Affiliate (as defined below); provided , however , that only a person who is an employee of the Company or any Affiliate at the date of the grant of an Option is eligible to receive ISOs under the plan. The term Affiliate as used in this Plan means a parent or subsidiary corporation as defined in the applicable provisions (currently Sections 424(e) and (f), respectively) of the Code. The term employee includes an officer or director who is an employee of the Company. The term consultant includes persons employed by, or otherwise affiliated with, a consultant. The term adviser includes persons employed by, or otherwise affiliated with, an adviser.
2.2 Except as otherwise expressly set forth in this Plan, no right or benefit under this Plan shall be subject in any manner to anticipation, alienation, hypothecation, or charge, and any such attempted action shall be void. No right or benefit under this Plan shall in any manner be liable for or subject to debts, contracts, liabilities, or torts of any option holder or any other person except as otherwise may be expressly required by applicable law.
3. | STOCK SUBJECT TO THIS PLAN; MAXIMUM NUMBER OF GRANTS |
Subject to the provisions of Sections 6.1.1 and 8.2 of this Plan, the total number of shares of Common Stock which may be offered, or issued as restricted stock or on the exercise of Options or SARs under the Plan shall not exceed eight million (8,000,000) shares of Common Stock. The shares subject to an Option or SAR granted under the Plan which expire, terminate or are cancelled unexercised shall become available again for grants under this Plan. If shares of restricted stock awarded under the Plan are forfeited to the Company or repurchased by the Company, the number of shares forfeited or repurchased shall again be available under the Plan. Where the exercise price of an Option is paid by means of the optionees surrender of previously owned shares of Common Stock or the Companys withholding of shares otherwise issuable upon exercise of the Option as may be permitted herein, only the net number of shares issued and which remain outstanding in connection with such exercise shall be deemed issued and no longer available for issuance under this Plan. No eligible person shall be granted Options or other awards during any twelve-month period covering more than seven hundred twenty-five thousand (725,000) shares.
4. | ADMINISTRATION |
4.1 This Plan shall be administered by the Board of Directors of the Company (the Board) or by a committee (the Committee) to which administration of this Plan, or of part of this Plan, is delegated by the Board (in either case, the Administrator). The Board shall appoint and remove members of the Committee in its discretion in accordance with applicable laws. At the Boards discretion, the Committee may be comprised solely of non-employee directors within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the Exchange Act), or outside directors within the meaning of Section 162(m) of the Code. The Administrator may delegate non-discretionary administrative duties to such employees of the Company as the Administrator deems proper and the Board, in its absolute discretion, may at any time and from time to time exercise any and all rights and duties of the Administrator under this Plan.
4.2 Subject to the other provisions of this Plan, the Administrator shall have the authority, in its discretion: (i) to grant Options and SARs and grant or sell restricted stock; (ii) to determine the fair market value of the Common Stock subject to Options or other awards; (iii) to determine the exercise price of Options granted, the economic terms of SARs granted, or the offering price of restricted stock; (iv) to determine the persons to whom, and the time or times at which, Options or SARs shall be granted or restricted stock granted or sold, and the number of shares subject to each Option or SAR or the number of shares of restricted stock granted or sold; (v) to construe and interpret the terms and provisions of this Plan, of any applicable agreement and all Options and SARs granted under this Plan, and of any restricted stock award under this Plan; (vi) to prescribe, amend, and rescind rules and regulations relating to this Plan; (vii) to
2
determine the terms and provisions of each Option and SAR granted and award of restricted stock (which need not be identical), including but not limited to, the time or times at which Options and SARs shall be exercisable or the time at which the restrictions on restricted stock shall lapse; (viii) with the consent of the grantee, to rescind any award or exercise of an Option or SAR and to modify or amend the terms of any Option, SAR or restricted stock; (ix) to reduce the exercise price of any Option, the base value from which appreciation is to be determined with respect to an SAR or the purchase price of restricted stock, provided that any such reduction shall not be less than provided with Sections 6.2.1 and 6.3.1; (x) to accelerate or defer (with the consent of the grantee) the exercise date of any Option or SAR or the date on which the restrictions on restricted stock lapse; (xi) to issue shares of restricted stock to an optionee in connection with the accelerated exercise of an Option by such optionee; (xii) to authorize any person to execute on behalf of the Company any instrument evidencing the grant of an Option. SAR or award of restricted stock; (xiii) to determine the duration and purposes of leaves of absence which may be granted to participants without constituting a termination of their employment for the purposes of the Plan; and (xiv) to make all other determinations deemed necessary or advisable for the administration of this Plan, any applicable agreement, Option, SAR or award of restricted stock.
4.3 All questions of interpretation, implementation, and application of this Plan or any agreement or Option, SAR or award of restricted stock shall be determined by the Administrator, which determination shall be final and binding on all persons.
5. | GRANTING OF OPTIONS AND SARS; AGREEMENTS |
5.1 No Options or SARs shall be granted under this Plan after ten (10) years from the date of adoption of this Plan by the Board. No SARs shall be granted under the Plan unless and until the common stock of the Company is publicly traded.
5.2 Each Option and SAR shall be evidenced by a written agreement, in form satisfactory to the Administrator, executed by the Company and the person to whom such grant is made. In the event of a conflict between the terms or conditions of an agreement and the terms and conditions of this Plan, the terms and conditions of this Plan shall govern.
5.3 Each agreement shall specify whether the Option it evidences is an NQO or an ISO, provided , however , all Options granted under this Plan to non-employee directors, consultants and advisers of the Company are intended to be NQOs.
5.4 Subject to Section 6.3.3 with respect to ISOs, the Administrator may approve the grant of Options or SARs under this Plan to persons who are expected to become employees, directors, consultants or advisers of the Company, but are not employees, directors, consultants or advisers at the date of approval.
6. | TERMS AND CONDITIONS OF OPTIONS AND SARS |
Each Option and SAR granted under this Plan shall be subject to the terms and conditions set forth in Section 6.1. NQOs and SARs shall also be subject to the terms and conditions set forth in Section 6.2, but not those set forth in Section 6.3. ISOs shall also be subject to the terms and conditions set forth in Section 6.3, but not those set forth in Section 6.2. SARs shall be subject to the terms and conditions of Section 6.4.
3
6.1 Terms and Conditions to Which All Options and SARs Are Subject . All Options and SARs granted under this Plan shall be subject to the following terms and conditions:
6.1.1 Changes in Capital Structure . Subject to Section 6.1.2, if the stock of the Company is changed by reason of a stock split, reverse stock split, stock dividend, recapitalization, combination or reclassification, or if the Company effects a spin-off of the Companys subsidiary, appropriate adjustments shall be made by the Administrator, in its sole discretion, in (a) the number and class of shares of stock subject to this Plan and each Option and SAR outstanding under this Plan, and (b) the exercise price of each outstanding Option; provided , that the Company shall not be required to issue fractional shares as a result of any such adjustments. Any adjustment, however, in an outstanding Option shall be made without change in the total price applicable to the unexercised portion of the Option but with a corresponding adjustment in the price for each share covered by the unexercised portion of the Option. Adjustments under this Section 6.1.1 shall be made by the Administrator, whose determination as to the nature of the adjustments that shall be made, and the extent thereof, shall be final, binding, and conclusive. If an adjustment under this Section 6.1.1 would result in a fractional share interest under an option or any installment, the Administrators decision as to inclusion or exclusion of that fractional share interest shall be final, but no fractional shares of stock shall be issued under the Plan on account of any such adjustment.
6.1.2 Corporate Transactions . Except as otherwise provided in the applicable agreement, in the event of a Corporate Transaction (as defined below), the Administrator shall notify each holder of an Option or SAR at least thirty (30) days prior thereto or as soon as may be practicable. To the extent not then exercised all Options and SARs shall terminate immediately prior to the consummation of such Corporate Transaction unless the Administrator determines otherwise in its sole discretion; provided . however , that the Administrator, in its sole discretion, may (i) permit exercise of any Options or SARs prior to their termination, even if such Options or SARs would not otherwise have been exercisable, and/or (ii) provide that all or certain of the outstanding Options and SARs shall be assumed or an equivalent Option or SAR substituted by an applicable successor corporation or entity or any Affiliate of the successor corporation or entity. A Corporate Transaction means (i) a liquidation or dissolution of the Company; (ii) a merger or consolidation of the Company with or into another corporation or entity (other than a merger with a wholly-owned subsidiary); (iii) a sale of all or substantially all of the assets of the Company; or (iv) a purchase or other acquisition of more than 50% of the outstanding stock of the Company by one person or by more than one person acting in concert.
6.1.3 Time of Option or SAR Exercise . Subject to Section 5 and Section 6.3.4, an Option or SAR granted under the Plan shall be exercisable (a) immediately as of the effective date of the of the applicable agreement or (b) in accordance with a schedule or performance criteria as may be set by the Administrator and specified in the applicable agreement. However, in no case may an Option or SAR be exercisable until a written agreement in form and substance satisfactory to the Company is executed by the Company and the grantee.
4
6.1.4 Grant Date . The date of grant of an Option or SAR under the Plan shall be the effective date of the applicable agreement.
6.1.5 Non-Transferability of Rights . Except with the express written approval of the Administrator, which approval the Administrator is authorized to give only with respect to NQOs and SARs, no Option or SAR granted under this Plan shall be assignable or otherwise transferable by the grantee except by will or by the laws of descent and distribution. During the life of the grantee, an Option or SAR shall be exercisable only by the grantee.
6.1.6 Payment . Except as provided below, payment in full, in cash, shall be made for all stock purchased at the time written notice of exercise of an Option is given to the Company and the proceeds of any payment shall be considered general funds of the Company. The Administrator, in the exercise of its absolute discretion after considering any tax, accounting and financial consequences, may authorize any one or more of the following additional methods of payment:
(a) Subject to the Sarbanes-Oxley Act of 2002, acceptance of the optionees full recourse promissory note for all or part of the Option price, payable on such terms and bearing such interest rate as determined by the Administrator (but in no event less than the minimum interest rate specified under the Code at which no additional interest or original issue discount would be imputed), which promissory note may be either secured or unsecured in such manner as the Administrator shall approve (including, without limitation, by a security interest in the shares of the Company);
(b) Subject to the discretion of the Administrator and the terms of the stock option agreement granting the Option, delivery by the optionee of shares of Common Stock already owned by the optionee for all or part of the Option price, provided the fair market value (determined as set forth in Section 6.1.9) of such shares of Common Stock is equal on the date of exercise to the Option price, or such portion thereof as the optionee is authorized to pay by delivery of such stock;
(c) Subject to the discretion of the Administrator, through the surrender of shares of Common Stock then issuable upon exercise of the Option, provided the fair market value (determined as set forth in Section 6.1.9) of such shares of Common Stock is equal on the date of exercise to the Option price, or such portion thereof as the optionee is authorized to pay by surrender of such stock; and
(d) By means of so-called cashless exercises as permitted under applicable rules and regulations of the Securities and Exchange Commission and the Federal Reserve Board.
6.1.7 Withholding and Employment Taxes . At the time of exercise and as a condition thereto, or at such other time as the amount of such obligation becomes determinable, the grantee of an Option or SAR shall remit to the Company in cash all applicable federal and state withholding and employment taxes. Such obligation to remit may be satisfied, if authorized by the Administrator in its sole discretion, after considering any tax, accounting and financial consequences, by the holders (i) delivery of a promissory note in the required amount on such
5
terms as the Administrator deems appropriate, (ii) tendering to the Company previously owned shares of Common Stock or other securities of the Company with a fair market value equal to the required amount, or (iii) agreeing to have shares of Common Stock (with a fair market value equal to the required amount), which are acquired upon exercise of the Option or SAR, withheld by the Company.
6.1.8 Other Provisions . Each Option and SAR granted under this Plan may contain such other terms, provisions, and conditions not inconsistent with this Plan as may be determined by the Administrator, and each ISO granted under this Plan shall include such provisions and conditions as are necessary to qualify the Option as an incentive stock option within the meaning of Section 422 of the Code.
6.1.9 Determination of Value . For purposes of this Plan, the fair market value of Common Stock or other securities of the Company shall be determined as follows:
(a) If the stock of the Company is listed on a securities exchange or is regularly quoted by a recognized securities dealer, and selling prices are reported, its fair market value shall be the closing price of such stock on the date the value is to be determined, but if selling prices are not reported, its fair market value shall be the mean between the high bid and low asked prices for such stock on the date the value is to be determined (or if there are no quoted prices for the date of grant, then for the last preceding business day on which there were quoted prices).
(b) In the absence of an established market for the stock, the fair market value thereof shall be determined in good faith by the Administrator, with reference to the Companys net worth, prospective earning power, dividend-paying capacity, and other relevant factors, including the goodwill of the Company, the economic outlook in the Companys industry, the Companys position in the industry, the Companys management, and the values of stock of other corporations in the same or a similar line of business.
6.1.10 Option and SAR Term . No Option or SAR shall be exercisable more than 10 years after the date of grant, or such lesser period of time as is set forth in the applicable agreement (the end of the maximum exercise period stated in the agreement is referred to in this Plan as the Expiration Date).
6.2 Terms and Conditions to Which NQOs and SARs Are Subject . Options granted under this Plan which are designated as NQOs and SARs shall be subject to the following terms and conditions:
6.2.1 Exercise Price . The exercise price of an NQO and the base value of a SAR shall be no less than the fair market value of the Common Stock on the date of grant.
6.2.2 Termination of Employment . Except as otherwise provided in the applicable agreement, if for any reason a grantee ceases to be employed by the Company or any of its Affiliates, Options that are NQOs and SARs held at the date of termination (to the extent then exercisable) may be exercised in whole or in part at any time within ninety (90) days of the date of such termination (but in no event after the Expiration Date). For purposes of this Section 6.2.2, employment includes service as a director, consultant or adviser. For purposes of this
6
Section 6.2.2, a grantees employment shall not be deemed to terminate by reason of the grantees transfer from the Company to an Affiliate, or vice versa, or sick leave, military leave or other leave of absence approved by the Administrator, if the period of any such leave does not exceed ninety (90) days or, if longer, if the grantees right to reemployment by the Company or any Affiliate is guaranteed either contractually or by statute.
6.3 Terms and Conditions to Which Only ISOs Are Subject . Options granted under this Plan which are designated as ISOs shall be subject to the following terms and conditions:
6.3.1 Exercise Price . The exercise price of an ISO shall not be less than the fair market value (determined in accordance with Section 6.1.9) of the stock covered by the Option at the time the Option is granted. The exercise price of an ISO granted to any person who owns, directly or by attribution under the Code (currently Section 424(d)), stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Affiliate (a Ten Percent Stockholder) shall in no event be less than one hundred ten percent (110%) of the fair market value (determined in accordance with Section 6.1.9) of the stock covered by the Option at the time the Option is granted.
6.3.2 Disqualifying Dispositions . If stock acquired by exercise of an ISO granted pursuant to this Plan is disposed of in a disqualifying disposition within the meaning of Section 422 of the Code (a disposition within two (2) years from the date of grant of the Option or within one year after the issuance of such stock on exercise of the Option), the holder of the stock immediately before the disposition shall promptly notify the Company in writing of the date and terms of the disposition and shall provide such other information regarding the Option as the Company may reasonably require.
6.3.3 Grant Date . If an ISO is granted in anticipation of employment as provided in Section 5.4, the Option shall be deemed granted, without further approval, on the date the grantee assumes the employment relationship forming the basis for such grant, and, in addition, satisfies all requirements of this Plan for Options granted on that date.
6.3.4 Term . Notwithstanding Section 6.1.10, no ISO granted to any Ten Percent Stockholder shall be exercisable more than five (5) years after the date of grant.
6.3.5 Termination of Employment . Except as otherwise provided in the stock option agreement, if for any reason an optionee ceases to be employed by the Company or any of its Affiliates, Options that are ISOs held at the date of termination (to the extent then exercisable) may be exercised in whole or in part at any time within ninety (90) days of the date of such termination (but in no event after the Expiration Date). For purposes of this Section 6.3.5, an optionees employment shall not be deemed to terminate by reason of the optionees transfer from the Company to an Affiliate, or vice versa, or sick leave, military leave or other leave of absence approved by the Administrator, if the period of any such leave does not exceed ninety (90) days or, if longer, if the optionees right to reemployment by the Company or any Affiliate is guaranteed either contractually or by statute.
6.4 Terms and Conditions Applicable Solely to SARs . In addition to the other terms and conditions applicable to SARs in this Section 6, the holder shall be entitled to receive on exercise of an SAR only Common Stock at a fair market value equal to the benefit to be received by the exercise.
7
7. | MANNER OF EXERCISE |
7.1 An optionee wishing to exercise an Option or SAR shall give written notice to the Company at its principal executive office, to the attention of the officer of the Company designated by the Administrator, accompanied by payment of the exercise price and/or withholding taxes as provided in Sections 6.1.6 and 6.1.7. The date the Company receives written notice of an exercise hereunder accompanied by the applicable payment will be considered as the date such Option or SAR was exercised.
7.2 Promptly after receipt of written notice of exercise and the applicable payments called for by Section 7.1, the Company shall, without stock issue or transfer taxes to the holder or other person entitled to exercise the Option or SAR, deliver to the holder or such other person a certificate or certificates for the requisite number of shares of Common Stock. A holder or permitted transferee of an Option or SAR shall not have any privileges as a stockholder with respect to any shares of Common Stock to be issued until the date of issuance (as evidenced by the appropriate entry on the books of the Company or a duly authorized transfer agent) of such shares.
8. | RESTRICTED STOCK |
8.1 Grant or Sale of Restricted Stock .
8.1.1 No awards of restricted stock shall be granted under this Plan after ten (10) years from the date of adoption of this Plan by the Board.
8.1.2 The Administrator may issue shares under the Plan as a grant or for such consideration (including services, and, subject to the Sarbanes-Oxley Act of 2002, promissory notes) as determined by the Administrator. Shares issued under the Plan shall be subject to the terms, conditions and restrictions determined by the Administrator. The restrictions may include restrictions concerning transferability, repurchase by the Company and forfeiture of the shares issued, together with such other restrictions as may be determined by the Administrator. If shares are subject to forfeiture or repurchase by the Company, all dividends or other distributions paid by the Company with respect to the shares may be retained by the Company until the shares are no longer subject to forfeiture or repurchase, at which time all accumulated amounts shall be paid to the recipient. All Common Stock issued pursuant to this Section 8 shall be subject to a purchase or grant agreement, which shall be executed by the Company and the prospective recipient of the shares prior to the delivery of certificates representing such shares to the recipient. The purchase or grant agreement may contain any terms, conditions, restrictions, representations and warranties required by the Administrator. The certificates representing the shares shall bear any legends required by the Administrator. The Administrator may require any purchaser of restricted stock to pay to the Company in cash upon demand amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the purchaser fails to pay the amount demanded, the Administrator may withhold that amount from other amounts payable by the Company to the purchaser, including salary, subject to applicable law. With the
8
consent of the Administrator in its sole discretion, a purchaser may deliver Common Stock to the Company to satisfy this withholding obligation. Upon the issuance of restricted stock, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued.
8.2 Changes in Capital Structure . In the event of a change in the Companys capital structure, as described in Section 6.1.1, appropriate adjustments shall be made by the Administrator, in its sole discretion, in the number and class of restricted stock subject to this Plan and the restricted stock outstanding under this Plan; provided , however , that the Company shall not be required to issue fractional shares as a result of any such adjustments.
8.3 Corporate Transactions . In the event of a Corporate Transaction, as defined in Section 6.1.2 hereof, to the extent not previously forfeited, all restricted stock shall be forfeited immediately prior to the consummation of such Corporate Transaction unless the Administrator determines otherwise in its sole discretion; provided , however , that the Administrator, in its sole discretion, may remove any restrictions as to any restricted stock. The Administrator may, in its sole discretion, provide that all outstanding restricted stock participate in the Corporate Transaction with an equivalent stock substituted by an applicable successor corporation subject to the restriction.
9. | EMPLOYMENT OR CONSULTING RELATIONSHIP |
Nothing in this Plan or any Option granted hereunder shall interfere with or limit in any way the right of the Company or of any of its Affiliates to terminate the employment, consulting or advising of any optionee or restricted stock holder at any time, nor confer upon any optionee or restricted stock holder any right to continue in the employ of, or consult or advise with, the Company or any of its Affiliates.
10. | CONDITIONS UPON ISSUANCE OF SHARES |
10.1 Securities Act . Shares of Common Stock shall not be issued pursuant to the exercise of an Option or the receipt of restricted stock unless the exercise of such Option or such receipt of restricted stock and the issuance and delivery of such shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended (the Securities Act).
10.2 Non-Compete Agreement . As a further condition to the receipt of Common Stock pursuant to the exercise of an Option or the receipt of restricted stock, the optionee or recipient of restricted stock may be required not to render services for any organization, or engage directly or indirectly in any business, competitive with the Company at any time during which (i) an Option is outstanding to such Optionee and for six (6) months after any exercise of an Option or the receipt of Common Stock pursuant to the exercise of an Option and (ii) restricted stock is owned by such recipient and for six (6) months after the restrictions on such restricted stock lapse. Failure to comply with this condition shall cause such Option and the exercise or issuance of shares thereunder and/or the award of restricted stock to be rescinded and the benefit of such exercise, issuance or award to be repaid to the Company.
9
11. | NON-EXCLUSIVITY OF THIS PLAN |
The adoption of this Plan shall not be construed as creating any limitations on the power of the Company to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options other than under this Plan.
12. | MARKET STAND-OFF |
Each optionee, holder of an SAR or recipient of restricted stock, if so requested by the Company or any representative of the underwriters in connection with any registration of the offering of any securities of the Company under the Securities Act, shall not sell or otherwise transfer any shares of Common Stock acquired upon exercise of Options, SARs or receipt of restricted stock during the 180-day period following the effective date of a registration statement of the Company filed under the Securities Act; provided , however , that such restriction shall apply only to a registration statement of the Company which includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act and the restriction period shall not exceed 90 days after the registration statement becomes effective.
13. | AMENDMENTS TO PLAN |
The Board may at any time amend, alter, suspend or discontinue this Plan. Without the consent of an optionee, holder of an SAR or holder of restricted stock, no amendment, alteration, suspension or discontinuance may adversely affect such persons outstanding Option(s), SAR(s) or the terms applicable to restricted stock except to conform this Plan and ISOs granted under this Plan to the requirements of federal or other tax laws relating to incentive stock options. No amendment, alteration, suspension or discontinuance shall require stockholder approval unless (a) stockholder approval is required to preserve incentive stock option treatment for federal income tax purposes or (b) the Board otherwise concludes that stockholder approval is advisable.
14. | EFFECTIVE DATE OF PLAN; TERMINATION |
This Plan shall become effective upon adoption by the Board; provided , however , that no Option or SAR shall be exercisable unless and until written consent of the stockholders of the Company, or approval of stockholders of the Company voting at a validly called stockholders meeting, is obtained within twelve (12) months after adoption by the Board. If any Options or SARs are so granted and stockholder approval shall not have been obtained within twelve (12) months of the date of adoption of this Plan by the Board, such Options and SARs shall terminate retroactively as of the date they were granted. Awards may be made under this Plan and exercise of Options and SARs shall occur only after there has been compliance with all applicable federal and state securities laws. This Plan (but not Options and SARs previously granted under this Plan) shall terminate within ten (10) years from the date of its adoption by the Board. Termination shall not affect any outstanding Options or SARs or the terms applicable to previously awarded restricted stock.
10
Exhibit 31.1
Certification of the Principal Executive Officer Under Section 302 of the Sarbanes-Oxley Act
I, Manish Singh, Ph.D., certify that:
1. I have reviewed this report on Form 10-Q of ImmunoCellular Therapeutics, Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: November 14, 2011 | By: |
/s/ Manish Singh, Ph.D. |
||||
Name: | Manish Singh, Ph.D. | |||||
Title: | President and Chief Executive Officer |
Exhibit 31.2
Certification of the Principal Financial Officer Under Section 302 of the Sarbanes-Oxley Act
I, David Fractor, certify that:
1. I have reviewed this report on Form 10-Q of ImmunoCellular Therapeutics, Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrant most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: November 14, 2011 | By: |
/s/ David Fractor |
||||
Name: | David Fractor | |||||
Title: | Chief Financial Officer and Treasurer |
Exhibit 32.1
Certification of the Principal Executive Officer
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of ImmunoCellular Therapeutics, Ltd. (the Company) hereby certifies that, to his knowledge:
The Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended September 30, 2011 (the Report) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 14, 2011 | By: |
/s/ Manish Singh, Ph.D. |
||||
Name: | Manish Singh, Ph.D. | |||||
Title: | President and Chief Executive Officer |
Exhibit 32.2
Certification of the Principal Financial Officer
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of ImmunoCellular Therapeutics, Ltd. (the Company) hereby certifies that, to his knowledge:
The Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended September 30, 2011 (the Report) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 14, 2011 | By: |
/s/ David Fractor |
||||
Name: | David Fractor | |||||
Title: | Chief Financial Officer and Treasurer |